April 30, 2010 / 4:05 PM / 9 years ago

Goldman's troubles may hurt money management unit

BOSTON (Reuters) - Federal civil fraud allegations against Goldman Sachs Group Inc. over a 2007 mortgage derivatives deal have drawn concern from some clients at the firm’s already-challenged money management unit.

The Oklahoma Teachers Retirement System voted on Thursday to put Goldman Sachs Asset Management “on alert” as it reviews the fraud allegations, an official at the fund told Reuters. Goldman manages more than $500 million of U.S. growth stocks for the retirement fund.

The move comes after current and former Goldman executives faced a fusillade of attacks and charges on Capitol Hill at an April 27 hearing. On April 16, the U.S. Securities and Exchange Commission filed fraud charges against the firm, claiming Goldman misled investors in a $1 billion collateralized debt obligation deal known as Abacus 2007-AC1.

Further upping the ante, Goldman is also the target of a criminal fraud investigation, a source familiar with the situation said on Thursday.

Goldman has repeatedly denied any wrongdoing. On Friday, a spokeswoman for the firm declined to comment on the asset management unit’s situation.

Goldman’s asset management unit, which oversaw $840 billion at the end of March, has been beset by customer withdrawals for the past several years following huge losses at its largest hedge fund and the departure of some top managers. Customers withdrew a net $39 billion in the first quarter.

In February, Goldman reshuffled the leadership of its money management unit for the third time in the past two years. Co-head Marc Spilker resigned and was replaced by Edward C. Forst. Forst had co-headed the unit before leaving the firm to join Harvard University in 2008.

Among other accounts lost this year, the Nevada Public Employees’ Retirement System fired Goldman on March 24 from running $600 million of international equities and in January the Los Angeles County Employees Retirement Association terminated a $240 million assignment.

Earlier this week, a 6 billion euro ($8 billion) Dutch transport pension fund said it had dropped Goldman as the fund’s fiduciary manager, but that its decision was not connected to the civil fraud charges.

Since the SEC charges were filed, officials at pension funds of Connecticut, New Jersey and New York City told newsletter Pensions & Investments they were also reviewing developments in the case.

Still, some of the largest institutional investors are taking a wait and see approach.

Christopher Ailman, chief investment officer of the $138 billion California State Teachers’ Retirement System, told Reuters on April 26 that his fund would continue doing business with Goldman for now.

“We’ll assume they’re innocent until they’re proven guilty,” Ailman said on the sidelines of the Milken Institute Global Conference in Beverly Hills, California.

Similarly, Joseph Dear, chief investment officer of the $213 billion California Public Employees’ Retirement System, told Reuters his fund was not taking any action against Goldman.

“It’s a big hypothetical,” he said, also speaking at the Milken conference.

Additional reporting by David Collins; Editing by Steve Orlofsky

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